4Q17 TAKEAWAYS
- O&O revenue returned to positive growth: On the heels of a 14 percentage-point acceleration vs. 3Q17. We estimate TWTR did so despite continuing declines in Legacy CPC ad revenue, which should be a waning drag moving through 2018.
- Ad Load continued to decline: Remember TWTR's model was previously reliant on ad load to drive revenue growth, so this a welcome sign. We believe TWTR still has more room to shed ad load while still driving revenue growth since Legacy CPC remains the overwhelming majority of its ad load.
- Autoplay becoming less of a drag on pricing: Ad engagements and CPE both accelerated on a q/q basis, which has only happened twice before. We estimate that Autoplay represented the overwhelming majority of ad engagements over the LTM, so there will be less pricing pressure from mix shift moving forward.
- Didn't go nuts with the guide: The mid-point of TWTR's revenue guidance only calls for ~6% revenue growth. We now believe it's even more likely that TWTR puts up double-digit ad revenue growth in 1Q (see scenario analysis in deck), especially with the Olympics providing an additional tailwind (as it did 4 years go).
- No upgrades? Not totally surprised considering how many of these guys got loud pushing the other side of the trade. We expect to see an upgrade cycle the first time TWTR puts up +20% revenue growth (only 6 buys out of 36 analysts). Btw, someone please tell Trivial Research Group that issuing Sell calls with street-high estimates is cheating.
TWTR Deck & Replay - click here
Let us know if you have any questions or would like to discuss in more detail.
